The EU and money3

09.01.2001.

Inna Steinbuka

the University of Latvia Centre for European and Transition Studies

The EU's member states are no longer all that attractive for investments, and other regions of the world are also not tempting because of the global economic decline. The economies of Central European countries, however, are continuing to develop at a more rapid pace, and Latvia, as an EU member state, could be interesting to investors.

In teaching classes at the master's degree program in European studies at the University of Latvia, I am sometimes surprised to find that some of my students are Euroskeptics. If students who have chosen to pursue European studies from amongst a wide range of study programs are skeptical about Latvia's membership in the EU, then what do less informed people in society think about this matter? I must say that people in Latvia do not have a uniform opinion about Latvia's joining the EU. Surveys and views which people have expressed in the mass media indicate that approximately one-third of Latvia's residents have a negative view of the Union.

Why are so many people in Latvia Euroskeptics? One reason is that people don't understand Latvia's role, rights and, especially, benefits upon joining the European Union. Sadly, one must sometimes admit that some of the arguments in favor of or against Latvia's membership in the EU are more intuitive than they are based on any facts or knowledge about the EU and its activities. Some of the claims are entirely without justification. People lack information, and the Latvian government must be more active in organizing informational events about the EU and its policies. There must be more in the way of explanations about what Latvia will win and lose when it joins the EU.

Latvia's benefits upon joining the EU will be very varied - economic, social, political, etc. I feel that the most important economic gains are the following:

There will be higher investments in Latvia, and that is the main factor in guaranteeing increased growth and improved welfare;

The Latvian financial and monetary system will become more secure, which is a guarantee for monetary stability in Latvia.

If we look at opportunities to attract investments, then we must conclude that Latvia, as a member state of the European Union, will attract finances from structural and cohesion funds in pursuit of its economic and social policies. The structural funds are financial instruments, which are used in the context of the EU's regional development policies, and they help EU member states to deal with their socio-economic problems. The role of the structural funds in the development of national economies is obvious. The success story of Ireland, for example, has been discussed to a great extent. Given that Latvia's economic and social development indicators are way below the average level in existing EU member states, it is of key importance to get some of that money for various projects in Latvia. New projects and direct investments in industry, the infrastructure, environmental protection, agriculture, education and health care will create jobs and promote economic growth. Much has been written in the press about this aspect of investments.

An indirect benefit from Latvian membership in the EU, meanwhile, is the fact that the current-day EU's member states are no longer particularly attractive for investments, and other regions of the world are not tempting in terms of making large investments there because of the global economic decline. The economies of the Central European countries, by contrast, are continuing to develop at a more rapid pace than is the case in other countries in the world, and this is a region which can attract investments. The Baltic States are particularly attractive. GDP growth in Latvia is the highest among the Baltic States and the EU candidate countries. As a member state of the EU, therefore, Latvia will be interesting to foreign and local investors alike. The status of an EU member state would provide investors with certain guarantees that the business environment is in line with the EU's high standards.

Then there is the issue of monetary stability. Latvia has significant problems with its current account balance, therefore the financial and monetary system is rather vulnerable. This is one of the reasons why IMF has insisted that Latvia must reduce its budget deficit. In joining the EU and the Economic and Monetary Union, Latvia will become a part of the EU's financial system. That will guarantee stability in prices and exchange rates, stable interest rates on government securities, and the elimination of any risks related to the financial system.

These are by no means the only benefits, which will accrue to Latvia upon joining the EU, but let's leave the other benefits to another discussion.